Please use this identifier to cite or link to this item:
Veldkamp, Laura
Wolfers, Justin
Year of Publication: 
Series/Report no.: 
IZA Discussion Papers 2339
When similar patterns of expansion and contraction are observed across sectors, we call this a business cycle. Yet explaining the similarity and synchronization of these cycles across industries remains a puzzle. Whereas output growth across industries is highly correlated, identifiable shocks, like shocks to productivity, are far less correlated. While previous work has examined complementarities in production, we propose that sectors make similar input decisions because of complementarities in information acquisition. Because information about driving forces has a high fixed cost of production and a low marginal cost of replication, it can be more efficient for firms to share the cost of discovering common shocks than to invest in uncovering detailed sectoral information. Firms basing their decisions on this common information make highly correlated production choices. This mechanism amplifies the effects of common shocks, relative to sectoral shocks.
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

Files in This Item:
471.74 kB

Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.